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CWU PENSIONS SEMINAR

CWU PENSIONS SEMINAR. History of Pensions and Royal Mail Pension Schemes. 1970 - Scheme set up “POSSS” – Move away from civil service. 1 st April 1987 - POSSS scheme closed PoPs scheme opened 2000 - Schemes merge but not benefits

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CWU PENSIONS SEMINAR

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  1. CWU PENSIONS SEMINAR

  2. History of Pensions and Royal Mail Pension Schemes

  3. 1970 - Scheme set up “POSSS” – Move away from civil service. 1st April 1987 - POSSS scheme closed PoPs scheme opened 2000 - Schemes merge but not benefits 2000 - Major changes to PoPs (£3328 LED / 6%) 2000 - Royal Mail DC scheme opened

  4. Royal Mail Pension Plan Employee Members 167,311 Pensioner Members 175,568 Deferred Members 108,988 Total Membership 451, 967

  5. Active Membership distribution by age Number of records Age

  6. Pensioners Membership distribution by age Number of records Age

  7. Deferred Membership distribution by age Number of records Age

  8. So Why and What are the Problems? • Longevity - Men & women living longer • Low interest rates (Gilts & Bonds) • Investment returns predicted to be lower than expected (Equity / Property)

  9. Q: What is the size of the pension problem facing Royal Mail? A: 2003 valuation 2006 valuation Deficit 5% 10% Ongoing 12.6% 20% Total 17.6% 30% Contribution Note: Total pay bill £3.3 billion Note: Royal Mail cost per £1 of pensionable pay 30p

  10. Royal Mail’s Pension Cost 2006 Deficit £3.5 billion paid over 17 years agreed with scheme trustees (£268 million pa)

  11. Future Pension Costs Ongoing pension £581 million (pa) contributions

  12. Pension Plan: 5 year HistoryContribution & Assets 2003 2004 2005 2006 2007 £million £million £million £million £million Employer 248 648 670 526 789 Contribution Employees 192 176 174 182 183 Assets 11,954 15,252 17,246 21,882 23,460

  13. 2003 Valuation Assumption Life expectancy at age 60: Category Men Women Pensioner 22 years 25 years Projected 2026 23.5 years 26.5 years

  14. 2006 Valuation Factual Life expectancy at age 60: Men Women 26 years 29 years Projected 2026 27.5 years 30.5 years

  15. Actuarial Valuation 31 March 2006 Employers’ Contributions (Future Service) Investment Return Employees’ Contributions Employer’s (Deficiency) .................…………......Liabilities £25.3bn (2003 valuation £14.5 billion) …..….........…………..............Assets £21.9bn 86.6% Benefits Expenses Actuary

  16. Q: What is Royal Mail’s objective? A: To lower its “Risk and Exposure” to pension volatility.

  17. 3 Areas of Risk: Past Services £3.5 billion Future Services £580 million New Entrants costs £1.5 billion of £2 billion

  18. Royal Mail De-Risking Proposal Leaked document July 2007: • Close scheme to new starters • Retirement age increased to 62 in 2008, 65 in 2010 • Either – future pensionable pay increases restricted to RPI capped at 5% Or - CARE scheme indexed to RPI capped at 5% • Service to date of change increased by RPI capped at 5%

  19. CWU Position • Full protection of benefits accrued to date of change by maintaining final salary link • Right to retire at 60 for existing scheme members • A defined benefit scheme open to all including new starters

  20. The Proposals • Past service protected before 1 April ’08 • Pensions paid at age 60 • Pension based on final salary • Royal Mail committed to paying off deficit • Change retirement age to 65 • Introduce a CARE scheme

  21. CARE Scheme Career Average Revalued Earnings (CARE) schemes provide a level of benefit based on average salary over an entire career. Earnings from years before retirement or leaving are increased so they keep their real value.

  22. CWU Position “Willingness to accept changes which reduce the ongoing employer contribution on the basis that any changes should be agreed with the union prior to the formal consultation exercise with members. We have sought to fully protect accrued benefits to date and mitigate the impact of any changes going forward” Reps Briefing 28/9/2007

  23. What alternatives? Increase in employee contributions? RULED OUT

  24. What alternatives? Government funding? £850 million in Escrow account – only available if company becomes insolvent EU Rules on state aid WOULDN’T SOLVE PROBLEM

  25. Next Steps

  26. CARE Scheme Year Start Year End Earnings Pension Revalued at 31/03/2014 4/1/04 3/31/05 £8,100 £101.25 £126.45 4/1/05 3/31/06 £9,600 £120.00 £146.21 4/1/06 3/31/07 £9,300 £116.25 £138.18 4/1/07 3/31/08 £9,800 £122.50 £142.06 4/1/08 3/31/09 £10,200 £127.50 £144.25 4/1/09 3/31/10 £10,500 £131.25 £144.88 4/1/10 3/31/11 £9,500 £118.75 £127.88 4/1/11 3/31/12 £9,100 £113.75 £119.51 4/1/12 3/31/13 £7,500 £93.75 £96.09 4/1/13 3/31/14 £8,500 £106.25 £106.25 Total £1,291.76 Final Salary Scheme Pension Years of scheme membership X 1/80th X pensionable earnings Pension 10 years X 1/80th X £8,500 Total Pension £1,062.50

  27. Pension Calculation Section B (POSSS) Pensionable Pay £18k Pensionable Service 25 years 25 80 x £18k = £ 5,625 Lump sum calculation: £5,625 x 3 = £ 16,875

  28. Pension Calculation Section C (PoPs) Pay £ 18k Lower Earnings Deduction £ 3,328 Pensionable Pay £ 14,672 Pensionable Service 15 years 15 60 x £14,672 = £3,668 Pension Supplement paid to state pension age: 15 60 x £3,328 = £ 832 Total pension £ 4,500

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